Retailers hope for hot sales in winter

Outlook cautious after last year's dismal holidays

Last month, in the heat of Houston, more than 1,000 managers from Wal-Mart Stores Inc. gathered to preview holiday merchandise in preparation for the retailer's top selling season.

The employees roamed through store replicas featuring shelves laden with tree-trimming decor as executives rallied the managers into a holiday spirit--despite a nagging fear that consumers will keep close watch on their spending.

With back-to-school sales wrapping up, mass market retailers such as Wal-Mart have turned their focus to ramping up business for the last two months of the year. The holiday season is a crucial time for retailers; some reap more than 30 percent of annual sales during that time.

Yet the memory of last year's dismal sales--a 2 percent growth rate that was the worst showing in a decade--is still fresh for retail executives. And while the economy has shown signs of perking up in recent months, the environment is far from robust.

Whether consumers will be more willing to spend this year than last is an ongoing concern.

Retail executives surveyed by the Bank of Tokyo-Mitsubishi said they had higher hopes for consumer spending in the next six months, but they seemed guarded when placing inventory orders for the holidays.

"Retailers know consumers will continue to purchase cautiously," said Ellen Tolley, spokeswoman for the National Retail Federation in Washington, D.C. "A general rule for consumers is to buy it when you see it."

Buyers for Target Corp.'s discount stores planned cautiously this year even though the company is optimistic about sales for the second half of the year, said Brie Heath, a spokeswoman for the discount chain.

Wal-Mart Stores ordered more merchandise than it did last year, but that is partly because it has 8 percent more stores, Williams said. Still, the company has hopes for good holiday sales.

"It's a season that you never want to be caught flat-footed," he said. "The burden is on us to stay in stock."

Sears, Roebuck and Co. declined to disclose its inventory plans for the holiday season in order to avoid tipping its hand to competitors, a representative said Monday.

Planning for the holidays takes place about a year in advance, and orders are typically placed in the spring. While retail buyers were mulling their holiday purchases, retailers were wrestling with slow spring and early summer sales that left them with a glut of inventory as the back-to-school shopping season kicked in.

Many stores, such as Kohl's and Wal-Mart, were forced to slash prices this summer to move slow-moving merchandise. That tactic paid off by enticing consumers to buy more, as evidenced in stronger-than-expected August sales results.

"The summer was good," said Michael Collins, vice president of Bain & Co. in Chicago. "What remains to be seen is at what margins."

Consumers love a bargain, but higher sales volumes at discounted prices mean a sacrifice in profits for retailers.

Anticipation of heavy promotions could have caused retail executives to hold back holiday purchases.

"It's hard to think that at a time when retailers were heavily discounting prices to get their inventory in line, they would be bullish about the next season," said Alexander Paris, a retail analyst for Barrington Research in Chicago. "Then again, they do have to look ahead."